Free Apps, Ad-Supported Business Models are Dangerous!

At today's roundtable, the last for 2011, we had four different countries represented and an intense set of discussions on five very interesting businesses -- a fabulous event to end the year with.

BootstrapToday
Anand Agarwal from Pune, India, pitched BootStrapToday, an Application Lifecycle Management (ALM) SaaS solution from his company Sensible Softwares. Anand already has 100 beta customers and 15 of them are paying Rs. 1000 to 2000 (approximately $20 to $40) per month to access advanced workflow logistics and intelligence in the area of software testing and productivity improvement.

Anand is asking an important question as part of his work with BootStrapToday: The annual cost of software bugs is about $59.5 billion. Can we reduce time spent on fixing bugs and maintain quality? If you are running a software engineering team, I am sure you can relate to this question rather well.

To answer the question, Anand and his team are leveraging social network-based machine learning and intelligence built into application lifecycle management, thereby reducing the knowledge gap and ramp up time via effective collaboration. Social network analysis of developer contributions to predict software quality, dependency structure and fault proneness of individual software components are just some of the pieces of the immensely complex puzzle. If you wish to experiment with the product, please sign up at BootStrapToday.

Anand also announced a newly drawn up partnership with AppDirect, which is a network of marketplaces for Web-based software and distribution to more than 500,000 businesses. Through the AppDirect Network, BootStrapToday is currently available for free trial and purchase through ISP's including Bell Canada, which is Canada's leading ISP (Internet Service Provider). BootStrapToday has now been listed both on AppDirect and Bell Business App Store.

Anand is a premium member of the 1M/1M program, and we will be working with him to further validate his product, crystallize his go-to-market strategy and, of course, help him get to the upcoming 1M/1M Hall Of Fame.

Inphodrive
Next Mark Heifets from Netanya, Israel, presented Inphodrive, a technology for helping drivers use the Internet in a completely speech enabled mode. Mark is looking for an appropriate segment to position this market in, and I advised him against a pure consumer solution if his assumption is that the business model would be an ad-supported mobile app.

You may ask why, and this is a very important point that I would like all entrepreneurs to be aware of. Currently, there is far too much unmonetized ad inventory online and on the mobile eco-system, and this is dramatically driving down CPM rates making it very difficult for businesses to survive on ad revenue. Those who read my columns regularly know that I have highlighted this problem as one of 2012's biggest open problems that needs to be addressed. Meanwhile, though, I cannot advise nascent businesses to launch with a free, ad-supported business model. You have to go to a subscription or a transaction business model, and if you are doing Freemium, then please, also be aware that only 1%-2% of free users convert to premium. It may or may not be sufficient to build your business, especially if you are working with a low ARPU scenario. Do not stumble into an unworkable situation without thinking through these highly complex business model, pricing model, and sustainability issues.

evly
Then, Eric Edelstein from Cape Town, South Africa, pitched evly, a Facebook app for crowdsourcing ideas that he foresees brands using to engage their audiences. Eric is working with a good number of brands and ad agencies in South Africa and has already succeeded in getting them to pay $700/month for the solution. However, there are some significant issues around pricing and sales model alignment here that need to be dealt with to arrive at a repeatable sales process for the international market, which is Eric's eventual goal. In the U.S. or Europe, for example, selling an $8,400/year subscription via direct field sales is just not justifiable. It will render the profitability of the business unworkable. What I like very much in Eric's situation is that real customers are involved, and from them he can derive good feedback. My guidance, however, is that there is a complex pricing model and sales channel strategy to figure out here, one that I have seen many startups get burnt by. Eric needs to be aware of the pitfalls.

BlitzLocal
Then Dennis Yu from Portland, Oregon, presented BlitzLocal, which is an analytics engine gauging the effectiveness of online campaigns for various brands like Rosetta Stone. Dennis has a robust enterprise business that is yielding strong revenue traction, and he is now trying to figure out how to make a self-service version of the 'report card' tool available to small businesses. There is, once again, a significant brand and pricing challenge here. If he gives a somewhat similar (adequate) product to small businesses for free or for a very small price, his enterprise customers would refuse to pay the kind of premium they are paying today.

I asked Dennis why he doesn't just focus on the enterprise business, which seems to be scaling nicely. If I heard him correctly, he said that some days, the business scored $100,000 a day. If that is indeed true, I simply don't see a business case for diverting attention away from the enterprise business.

A.I.type
Last, Udi Yehezkel from Hadera, Israel, pitched A.I.type, a very interesting predictive writing technology for mobile keyboards. Today, when fat fingers dance on tiny keyboards, often the results are awkward. Mistakes happen. Autocorrect features on iOS or Blackberry are simply not of the accuracy level that Udi's technology can get to.

Currently, Udi has an Android App out there, which has 250,000 free users, of which 5,000 are paying. Clearly, there is a very easy Android App business to be built here. But conceivably more, in partnering with the OS vendors as well, like Google, Apple, Microsoft, Palm and RIM. Very interesting business!

You can listen to the recording of today's roundtable here. As always, I would very much like to hear about your business, so let me invite you to come and pitch at one of our free 1M/1M public roundtables. We will be holding future roundtables at 8:00 a.m. PST on the following dates:

If you want a deeper relationship with me, you are very welcome to join the 1M/1M premium program. If you have any questions about the program, please, first study the website, especially What to expect from the 1M/1M premium program and the FAQs. If you have additional questions, please email me, and I would be very happy to respond. Please note that I work exclusively with 1M/1M entrepreneurs.

I also invite you to join the 1M/1M mailing list for the ease and convenience of getting updates. This way we can stay in touch, and it will help you to decide if 1M/1M is a program for you.